Tax Update – Section 113 Request

Allied Farmers Ltd
201 Broadway, Stratford, 4332
PO Box 304, Stratford 4352
Phone: 06 765 6199
Web: www.alliedfarmers.co.nz
Email: headoffice@alliedfarmers.co.nz





4 December 2019

TAX UPDATE - SECTION 113 REQUEST

Allied Farmers Limited Group (Allied NZX:ALF) advises that on the evening of 4 December
2019 it received communication from the Commissioner of Inland Revenue that she has
declined a request to exercise her discretion to issue amended income tax assessments in
respect of each of the 2016, 2017 and 2018 income tax returns in relation to payments that
were incorrectly classified as subvention payments.

In January 2016 Allied purchased a block of shares in its subsidiary NZ Farmers Livestock
Limited (NZFLL), resulting in it returning to the 66.66% common ownership that it had in
August 2014. Based on advice received at the time, subvention payments were
recommenced to Allied from NZFLL in 2016.

However, because commonality of ownership was not maintained at all times from the time
the losses were incurred until the recommencement of the subvention payments, the
payments could not have been treated as subvention payments.

The Commissioner was asked to allow a correction of the position by permitting a late loss
offset election to deal with the resulting additional taxable income to NZFLL where the
subvention payments are removed from its taxable income calculation. The request was
declined.

Allied’s tax advisors are optimistic that after discussion and clarification of the key issues,
there is a reasonable expectation that the Commissioner may reverse her initial decision
and allow the late offset request. At this stage no formal assessment has been received by
NZFLL. An assessment can be disputed, as can a decision to deny an actual request to
offset the losses.

An assessment to NZFLL denying the subvention payment deductions for the 2016-2018
income years would be tax of $1,193,948, plus interest and penalties (late payment and, if
applicable, shortfall penalties). Such a payment, if required, can be funded from Allied’s
current cash balances. If such payment is made, Allied shareholders would benefit from
imputation credits on future dividend as a result of that additional tax paid.


Mark Benseman
Chairperson